3 weeks ago we reported:
“Yesterday one of our suppliers of locally refined NZ silver advised us they would be raising their prices for silver bullion as of this Monday.
Silver Demand Rises – So Do NZ Silver Prices on Monday 20 July
They advised that there’s been an increase in Silver demand globally and this has affected their own suppliers ability to supply Silver.
They are also witnessing increased demand with their own Silver Bullion fabrication delivery dates also creeping out further into the future. So silver demand has exceeded their fabrication capacity.
This increase in global demand has affected their suppliers and therefore they have raised the price for Silver. So the NZ refiner (our supplier) has also had to raise their silver price due to their increased costs and also to manage demand. They hope to lower the price again when conditions change.
Prices for 0-4 kgs are unchanged.
But the local price for 5kg or more of silver will be rising from spot + 7% + $13.80 ingot charge to spot + 9% + $13.80 ingot charge”…
…it will be interesting to see how long these higher premiums persist. Our guess is Mike Maloney is right that this isn’t the end of the world – yet. This monetary crisis might be drawn out a while longer yet, so odds are premiums will return to normal again. As eventually either demand will fall or the refiners and fabricators will ramp up production to meet the demand.
So the “silver shortage” is probably still more of a fabrication bottleneck, than an actual shortage of silver.
The trouble is in knowing when the day of reckoning will come. You need to have your insurance in place before then.
Best not to wait too long if you’re thinking of buying. At least take a position and then consider keeping some up your sleeve for any possible dips in price to come.”
Further Increases in Silver Premiums
Well, it seems the premiums increases might last a little longer yet.
Yesterday another refiner of silver here in Auckland also announced a rise in prices of locally refined silver, along with other imported products. They cited massive demand increases and huge currency fluctuations meaning their suppliers have amended their pricing on the likes of silver maples and silver eagle coins and also on silver grain (silver grain being the form they receive silver in before it is refined into silver bars).
They have had to pass these increases onto the end buyer.
The end result of this is that NZ refined silver bars of 0 – 4 kgs are now priced at 13% over the spot price. Up from the current 10% above the spot silver price. (5kgs or more of NZ silver had already risen as noted above when the other local supplier raised prices. This is the better deal at spot + 9% + $13.80 ingot charge).
Gold Demand Also Increasing?
This week we also read a report of the Royal Canadian Mint having delays on silver but also now on gold:
“Even bigger news is that the RCM [Royal Canadian Mint] has gone on allocation for silver and gold. While silver products have been on allocation several times in recent years, the last time gold products were on allocation from a major national mint was during the 2007-2008 financial crisis. During that time, investors had to wait a month or more before receiving product. (Silver shipments took much longer, averaging around two to three months or more.) These are roughly the same dynamics we are witnessing currently from the RCM. For the first time in over eight years, investors who want to buy a highly marketable gold product – the Gold Canadian Maple Leaf– may have to wait a month or more to receive it. The importance of this event should not go overlooked.”
From what we can gather from our international contacts this still seems like more of a fabrication bottleneck. Possibly mints like the Royal Canadian Mint may have reduced their production capacity over the past few years with a slackening of demand and so now have been unable to cope with the recent global surge in demand.
While an article over at SRSrocco Report wonders whether this is the beginning stages of a global run on silver:
“Since the middle of June, investment demand for silver has increased considerably. Matter-a-fact, the U.S. Mint suspended sales of the Silver Eagle for two weeks starting on July 12th. When Silver Eagle sales resumed on July 27th, over 2.5 million were sold over the next two days…
…In addition, India has imported a record 3,824 metric tons (mt) in the first six months of the year. This is up 35% compared to the same time last year. And according to the BankBazzar.com July 28th press release:
Generally, as far as market observation goes, silver imports rise in the second half of the year. The rise in demand in August, is a result of the jewellery making and silverware industry, just before the festive season in Autumn as well as supplying for exports before Christmas.
…Another factor in the rise in global silver demand is the recent decline in silver stocks at the Shanghai Futures Exchange [SHFE]…
…SHFE silver warehouse stocks increased from 176 mt at the end of January to a peak of 394 mt on June 15th. However, silver stocks began to decline at the latter part of June, then plummeted in July falling 34% to 261 mt by the beginning of August.
And then we had this from a Money Metals Exchange article, Investment Silver Demand Draining COMEX Vaults:
One or more major players “jumped the queue” and took delivery of about 6.5 million more ounces of silver out of COMEX warehouses than anticipated at the beginning of the month.
The July data should send a shiver down the spine of anyone with a naked short position on silver, i.e. anyone who doesn’t have physical silver to deliver if a counter-party demands it. Short sellers are counting on being able to settle in cash – or grab silver bars from exchange vaults if necessary.
Mints Scouring America for Raw Silver
The big spike in investment coins, rounds, and bars is almost certainly behind the unusual delivery activity at COMEX warehouses.
Our sources indicate mint and refinery demand is largely responsible for this “jumping [of] the queue” and offtake of 1,000-ounce bars. The silver is needed for manufacturing into smaller retail products currently in very short supply.
Some major precious metals depots around the country, such as those in Los Angeles, completely ran out of all forms of pure silver last week, and mint owners are scouring the country to lock up the silver they need to keep production running.
Folks, we have to remember, this huge spike in physical silver demand is still from a fraction of investors. The only folks buying silver are either a few wealthy individuals (some who are finally waking up) and the diehard precious metals investors that make up 1-2% of the total investment market.
What happens when more wealthy individuals, institutions and the masses finally get on board? There just isn’t enough silver if any of these individual classes of investors wanted to purchase physical silver.
Lastly, physical silver investment demand continues to get stronger every year… even as the price declines. Savvy investors realize the Fed and Central Banks haven’t fixed anything so the day of reckoning is still coming. The situation today is is much different than the two and a half decade lull in silver prices after its meteoric rise in 1979.
The Fed and Central Banks had 35 years of rising global oil production to increase paper leverage and debt. Now that the world has plateaued in conventional oil production (U.S. shale oil peaked months ago), the peak and decline will wreak havoc on the world’s highly leverage paper Ponzi Scheme.
Investors better take notice in the huge increase of physical silver investment demand and market shortages as this will likely to only get worse in the future. Better to have your silver now, then wait until it’s nearly impossible to acquire.”
As we’ve said before who knows how the timing of this will all play out. It still seems to us that this is still a “retail shortage”. Meaning that it is due to bottlenecks in fabrication and production rather than a shortage of silver itself.
However some of the points made above are interesting, particularly the increased off take of the 1000 oz COMEX bars. If demand were to increase further then this could theoretically produce a shortage in the wholesale market too. That is when we should really take notice!
The fact that silver premiums are rising here in New Zealand due to rising prices for “silver grain” shows there is a definite global increase in demand. Even if that demand – in our eyes anyway – is not quite so great in New Zealand.
What Happens to Silver Premiums From Here?
We wonder if there is still one more downdraft to come, a final wash out of gold and silver in US dollar terms at least anyway.
If this were to occur though, it would be likely that premiums may rise even higher yet. Because as the SRSrocco Report notes falling prices seem to have stoked silver demand thus far instead of doing the opposite.
So we could see a repeat of 2008’s massive premiums above spot price. Meaning even though there were new lows (in silver in particular) you couldn’t actually buy physical silver anywhere close to the “paper” price of silver.
Our view remains if you don’t have a position it might be a good idea to get one. But also perhaps to break your total sum you want in gold and silver into a number of “chunks” and buy over the coming months. Thereby getting a decent overall price regardless of whether prices go up or down.
What do you think about what might happen to gold and silver demand from here? Share your thoughts and leave a comment below.